Business leaders face pressure to deliver above-market growth at the best of times. When the global economy is weak, that demand becomes more acute. While strategic mergers and acquisitions have the ability to generate growth, the fact remains that consistently beating the market over time requires more than that. It takes superior internal capabilities, most notably commercial capabilities in marketing and sales. Hiring new talent is a critical component, but in our experience, developing a market-beating company requires true organizational change.
We believe that executives today need to focus on building capabilities with the same level of commitment they showed when transforming their businesses through lean operations in the 1980s. Yet that prospect is understandably daunting. After all, traditionally, less than a third of transformations succeed as expected, with a staggering 70 percent of failures due to an organization’s inability to adopt required new behaviors quickly and completely. And while this low success rate may suggest caution is warranted, we find that leaders often doom transformation efforts by being overly tentative. That’s why this level of change requires significant courage and leadership.
In this article, we detail a new approach to commercial transformation—the process of upgrading marketing, sales, and pricing capabilities to drive revenue or margin improvements—that is turning that failure rate on its head. We have found an astonishing 90 percent of companies that embrace this new approach are not only delivering above-market growth but also sustaining it over time (exhibit). In addition, two-thirds of all companies pushing these transformations are achieving this in either profitability or revenue growth, and a quarter are achieving it in both (for a comprehensive view of the marketing and sales capabilities of leading companies, see “
Building marketing and sales capabilities to beat the market”).
Upgrading marketing, sales, and pricing capabilities can deliver sustainable above-market growth.
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McKinsey_Website_Accessibility@mckinsey.com The case for change
While most major companies understand the need to adapt to the marketplace, we find that they often don’t have the level of commitment needed for a commercial transformation to succeed over time. Yet this is increasingly a decision leadership can’t put off. That’s because better commercial capabilities are necessary to respond to something that we observe more and more often in the marketplace: competitive advantage just doesn’t last very long anymore. “Sometimes we’ll spend a lot of time bringing a product to market, and we need to plan for the fact that that gives us only a six-month head start,” Gary Booker, the chief marketing officer of Dixons Retail, told us. “We need to then figure out, while our competitors are catching up with what we’ve just done, what we’re doing to make sure that when they get there, we’re already on to the next thing.”
What this means in practice is having an agile organization that is constantly innovating, spotting and reacting to new opportunities, and evolving with the customer. Even if your products can be copied, the personnel and process driving commercial capabilities in marketing and sales within your organization are a unique source of competitive advantage. That advantage can be significant: we know a chemicals company that increased revenue by 7 percent annually while cutting marketing and sales costs by 8 percent, a manufacturer whose revised marketing plans delivered revenue growth of more than 3 percent, and a paper and packaging company on track to improve return on invested capital to 10 percent in three years from 6 percent, thanks to a program to build a continuous-improvement mind-set in marketing and sales.
Yet if the case for change is clear, how to do it is less certain. How have these commercial transformations succeeded where others have faltered? Our experience leading 100 commercial transformations in the past five years, together with the results from a survey of 2,300 executives, distilled the recipe for success into the following six components.
1. Know where you are and where you’re going
Here’s where one European chief commercial officer believes any transformation should start: “You need to create the compelling case for change. Define what problem the organization is trying to solve and why the current status is not good enough.” We endorse that, with one addition: your clear vision should be based on insights from data rather than on hunches.
We find that companies typically don’t have a strong sense of their commercial capabilities. High-performing companies, however, systematically assess their capabilities at a granular enough level to allow executives to take meaningful action. The best companies are deliberate about identifying their strengths and weaknesses against all capabilities and then mapping them against their goals so they understand which capabilities to prioritize. Everyone in the C-suite can articulate what two to three commercial capabilities their organization is focused on building, how they are building them, and how well the capability-building effort is translating into impact.
Leading companies use intense multiday workshops to distill this initial vision into concrete targets and timelines that can be filtered down from the leadership team. Connecting a visionary goal with a clear and pragmatic time line creates tremendous energy to start the transformation.
2. Create a transformation team built on trust
With the aspirations and fact base in place, the next stage is to create a resilient commercial-transformation team. While it is typically led by the CEO, the head of sales, the chief marketing officer, or even the chief operating officer, it should include marketing, sales, operations, and business-unit leaders. Team members need to be respected—their day-to-day colleagues should feel they can’t afford to lose them. It is also important to include HR and communications professionals alongside a project manager who keeps everyone focused on the next step of the journey and tracks the relevant metrics.
Since commercial transformations are long processes and involve taking risks, the team must invest in building deep levels of trust to keep morale high over time. Our research shows that 63 percent of successful commercial transformations balance team health with performance. Activities to build that trust should focus on learning what makes each person tick, understanding motivations, and identifying attitudes toward change and risk.
To kick-start team building at a healthcare company, for instance, executives went on an off-site that included an extreme ropes course and an outdoor orienteering exercise in which some team members were blindfolded. Trust builds quickly when you’re dangling 50 feet above the ground or relying on someone else to see. The second half of the off-site focused on sharing stories, often personal ones related to issues that employees might not otherwise bring up in the workplace but that can explain behaviors with a major impact on a transformation. What matters is that the team members understand their own motivations and those of their colleagues as they embark on a transformational journey that involves new experiences and risks.
3. Score quick wins
Transformations don’t succeed unless they deliver substantive wins within 6 to 12 months. That’s why leading companies build momentum by focusing first on initiatives that have early impact—and help fund the transformation—then on building a case for further change efforts. For example, one heavy-equipment manufacturer learned there was a large pool of consumers that liked its brand but couldn’t easily buy its products because they were sold only through business-to-business channels. When the company moved its midpriced product line into big-box retailers, revenue jumped by 10 percent within just eight months.
Aside from the additional sales, this success proved that the company could—without upsetting its traditional sellers—get its products into new segments through both targeted marketing and building relationships with retailers. In the longer term, this quick win moved customer insights to the heart of everything the company did because it showed skeptics that transforming into a customer-solutions organization was both worth pursuing and achievable.
4. Activate the organization
Working with leadership, the transformation team has to devise a plan for pushing change throughout the organization. That requires a clear vision for building new habits at every level. For the C-suite, it’s about shifting mind-sets and developing new leadership and change-management skills (see sidebar, “Listen and lead: How leaders take responsibility”). For managers, the focus needs to be on coaching, product knowledge, and problem solving. Frontline sales reps need specific skills in areas such as consultative selling and pricing analytics. You can’t do everything at once, so the team needs to carefully sequence the effort, from rolling out training sessions to doing field work to reinforcing habits through e-learning, for example.
Activating an entire organization also requires finding the right people to make change happen throughout the business. More than 60 percent of our survey respondents said that having committed change leaders across the organization was “extremely important” to the transformation effort. At one packaging company, for example, senior managers used network-analysis and organizational-health-index tools to discover who would be “up for the battle,” in the words of one marketing director. The company ran a survey to identify who staff turned to when they had questions and who was trusted. The results revealed the most influential people at key points across the organization, and they were invited to become “change champions.” These are the people who have to reinforce the messages relentlessly and deliver the change on the ground.
Imaginative communications are also necessary so that everyone continues to sit up, take notice, and act. These may involve internal or even external advertising campaigns, social media, town-hall meetings, and a raft of other communication efforts.
5. Commit to coaching
Coaching is so critical for success that we want to highlight it specifically. Good coaching is much more than going on a ride-along with your buddies or doing a sales pitch while someone watches. It’s about a real commitment to improving your people by providing constructive feedback, empathizing, helping them work through issues, and reinforcing their strengths—at the right cadence. It’s also about role modeling new behaviors, something that rarely happens in practice.
The head of a business division told us that “personal development through manager coaching is now a hallmark of how we run our business.” It’s clear that success doesn’t just come from shiny new tools; it comes from breaking old habits. But turning sales managers into coaches requires a change in behavior. One company provided managers with training in traditional skills such as handling difficult conversations and assigned a “supercoach” to each sales manager. These coaches, drawn from its central sales-training team, observed real-life coaching interactions between managers and sales reps and gave specific feedback on the managers’ coaching skills. The company credits the enhanced coaching role of the sales managers with a 25 percent improvement in close rates.
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In sales, companies have found that a structured coaching program with at least weekly contact between coach and sales rep is vital to changing how people work. For example, a consumer-services company mandates that sales managers conduct daily 15-minute check-in calls with all reps who fail to hit their monthly targets. Reps who make their targets get weekly one-on-one sessions, and reps who exceed their targets get a ten-minute praise call every week. The company also requires managers to join each rep for a day every month.
Such regular and frequent contact can be vital to the success of pilot projects. One company held weekly meetings in which the team could plot strategy for the week ahead. The results of the first pilots exceeded all aspirations. Sales calls per rep rose by 40 percent, offers closed per sales team rocketed by 75 percent, and the average contract value per week rose by 80 percent—and by as much as 150 percent for new deals. These results were achieved with the same sales reps and managers who had previously been underperforming. It was the company’s approach to performance management rather than the specific tools that made the difference.
6. Hardwire a performance culture
Change is constant. Hardwiring a high-performance culture into a company’s DNA is the only way to assure growth above the market year after year. This requires putting in place specific processes and tools to redirect the organization, reinforce behavior, and build new habits. But the really critical component is putting in place the right metrics to track and adjust performance. Without them, it’s virtually impossible to understand what is and isn’t working.
The best-performing companies develop dashboards to track progress. They include basic financial-performance metrics, of course, but they also track indicators of changes in behavior, such as understanding how marketing is helping the sales force sell, which tools helped close sales, and how often collaboration meetings occurred. These companies also actively track capability metrics, such as training courses employees have taken, whether they passed or failed, and how that correlates with performance in the field. They then use those calculations to adjust their capability-building efforts and zero in on performers who need more or different training.
The companies that effect a successful transformation go one step further by adding surveys and in-person interviews with their people to provide an even more comprehensive picture of commercial performance. They also develop customer-satisfaction measures—using sales, business units, and pricing as the “customers” of marketing. To be most effective, measurement must start before a transformation kicks in, so as to create a baseline. Then, at regular intervals, companies measure again to understand what progress has been made at both the organizational and capability levels.
One multinational industrial company took this comprehensive commercial view of metrics and discovered a big gap between what sales reps were doing in the field and what their distributors actually wanted. Although the product and pricing were good, distributors wanted to visualize the product and calculate the cost and payoff of various product options. Further, they found that the things marketing was creating, such as brochures, weren’t helping with the sales process. Sales decided to ask marketing to create a calculator that would help tabulate the answers to distributor questions in real time.
A new breed of commercial transformation is rewriting the playbook on how to deliver successful, sustained, above-market growth. At least as much investment is needed in organizational culture and health as in the intricacies of what will change on the ground. Not only do all the pieces of the transformational jigsaw puzzle have to fit, but the picture they create also has to be clear and easily understood by everyone. A strong leader needs to ensure that the enthusiasm, energy, and momentum is sustained throughout the process. It’s likely to be one of the most challenging things a company undertakes—but it has the potential to be the most rewarding, both for your people and for achieving above-market growth.